Key Challenges

Looking to future challenges
Belgium faces three key challenges. First, it must improve the competitiveness and sustainability of its economy by strengthening numerous areas, such as public accounts, environmental protections and educational outcomes. Second, it must rationalize and stabilize its institutional arrangements. Third, it must better integrate socially marginalized groups, particularly second- and third-generation Muslim minorities.
Must address erosion
of competitiveness
During the Great Recession, Belgium managed to limit the damage inflicted on the country’s small- and medium-sized enterprise sector. On the whole, the country experienced only a slight recession. By 2010, real GDP had fully recovered and, in 2018, should sit 10.5% above its 2008 level. Clearly, Belgium’s economic situation better resembles that of Germany than that of Greece. However, the government has struggled to address effectively the progressive erosion of economic competitiveness. Belgium has one of the most open economies in the world, with small policy missteps thus having sizable consequences. Belgium’s (and, more generally, Europe’s) share of global exports has shown a consistent decline, as has its share of technological exports more specifically. The country has lost considerable ground in the car-manufacturing and high-tech-steel sectors, as well as in other industries. It thus needs to identify new areas capable of fostering high levels of GDP growth and aggressively transfer productive efforts toward these sectors.
Resources needed for infrastructure, environment
To improve its economic standing, the country needs to free up resources in such a way as to enable it to resume infrastructure investment, and tackle its environmental and mobility issues. In the long run, it will have to further improve its education system and reinforce the economy’s capacity for innovation, both by improving workers’ skills and through product-market reforms, stimulating the entry and expansion of new innovative firms. To date, the government has largely focused on a so-called tax shift intended to increase incentives for firm-level investment and job creation. Together with a tightening of unemployment-benefit conditions, this has slightly reduced the cost of labor. However, results have been limited – perhaps due to sluggish economic growth and investment levels worldwide. However, many pundits have criticized these reform efforts as being too timid.
Regional tensions
remain a danger
With respect to institutional arrangements, Belgium has suffered from decades of political instability caused by persistent cultural and political tension between the Flemish and the Walloon regions. Flanders remains wealthier, with unemployment rates about half the level seen in Wallonia. Wallonia’s economy once relied on coal mining and heavy industry. Today, the region continues to struggle with the process of shifting away from its dependence on these industries. Moreover, the Spanish separatist tensions pitting Catalans against Castilians may rekindle similar frustrations in Belgium. Maintaining a relationship of mutual respect between the country’s different communities will be critical in order to avoid falling back into political paralysis and sluggish socioeconomic reforms.
Risk of deadlock as next elections approach
The current government has said it would relinquish any additional institutional reforms, seeking to minimize political complications. Nonetheless, tax reforms implemented on the national level will have significant distributional consequences on the regions (in particular, for Wallonia). As a result, the deficit in Wallonia may balloon in the coming years. This will prevent the region from pursuing expensive reforms or making necessary public investments. There is thus a risk of political deadlock as the next round of elections approaches (2018 for municipal, and 2019 for regional, federal and European elections).
Inequality and social tensions rising
Belgium will have to deal with increasing inequality and social tensions. The country’s health care system is one of the world’s best and most accessible, but the objective of reducing the costs of social security will reduce its generosity. Similarly, the pension system has allowed for broad early-retirement benefits, with this practice becoming the norm at very high cost for the Belgian economy. Reforms on this front have been necessary for decades. Current efforts have certainly moved in the right direction, but have simultaneously stoked social tensions. Racial divisions have also widened since the terror attacks in Belgium and the rest of Europe. Anti-terror and anti-crime policies are an obvious necessity, but must be accompanied by significantly improved integration policies. Some of these efforts must start at the primary-school level or even before. However, education policies have been delegated to the subnational authorities, producing very unequal outcomes. For example, Flanders fares well in international rankings, whereas the French-speaking community fares very poorly (in part due to a larger proportion of socioeconomically deprived groups within this population).
Poverty, integration
must be addressed
Unemployment and poverty rates remain stubbornly high in Brussels, a city that attracts a large share of the country’s immigrants. However, underinvestment in the education sector means that student space within the city’s schools is increasingly insufficient to provide adequate schooling to the city’s growing student population. It is unclear whether recent increases in investment will reverse this problem. Given the comparatively broad dissemination of radical Islamist propaganda in the country, disenfranchisement must be addressed. Integration is bound to remain a major issue in Belgium over the next decade.

Schwab, Klaus and Sala-i-Marti, Xavier (2017). The Global Competitiveness Report 2017–2018. World Economic Forum editor.

Koutroubas, Theodoros, et al. (2011), ‘The complex community mosaic in Belgium,’ in Michael Emerson (ed.), Interculturalism: Emerging societal models for Europe and its Muslims (Brussels: Centre for European Policy Studies), 55-76.

Party Polarization

Polarization around language cleavage
In general, the Belgian party system is not highly polarized. From the 1970s onwards, there has always been some polarization around the “ethnolinguistic” cleavage, mainly between the Flemish and Francophone parts of the country, with basically two separate party systems and the presence of some specifically regionalist/nationalist parties.
Worst aspects of polarization have diminished
The success of the New Flemish Alliance (NVA) in Flanders, a party in favor of “confederalism” (i.e., no formal independence in the form a new country, but effective separation in terms of most regal competences), was a blow to post-fascist parties, and brought the NVA into the national government. This means that the NVA are now very active at the negotiation table and that the worst aspects of political polarization have diminished, in stark contrast to many other OECD countries. This being said, polarization along ethnolinguistic lines continues to complicate negotiations between governmental parties at the federal level and spurs some tensions in parliament on a number of contentious topics, as Flemish and Francophone parties largely address two different constituencies. (Score: 6)
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